from the that's-not-fair dept

Patents are intellectual monopolies, designed to give the patent-holder control over an invention by excluding others from using it without permission. That's a problem when standards include patented elements. Anyone who wants to implement that standard must use the invention, which gives the patent-holder the ability, in theory, to demand and obtain any licensing deal it might propose. To limit that power, holders of these standard-essential patents are often required to agree to offer licensing terms on fair, reasonable and non-discriminatory (FRAND) terms.

Of course, that leaves open the rather important question of what exactly FRAND means in practice, and an interesting case before the Court of Justice of the European Union aims to obtain some guidance on this issue. The court itself has not yet handed down its judgment, but as usual, an Advocate General has offered his own thoughts as preliminary guidance (pdf). Here's the background to the case:

Huawei, a Chinese telecommunications company, holds a European patent regarded as 'essential' to the 'Long Term Evolution' (LTE) standard developed by the European Telecommunications Standards Institute (ETSI). The LTE standard relates to next generation -- that is to say, fourth generation -- mobile phone communications. Anyone complying with the standard inevitably uses the patent owned by Huawei, which is why that patent is categorised as 'essential'. Huawei is a member of ETSI and notified the patent to that institute. Huawei also made a commitment to ETSI to grant licences to third parties on fair, reasonable and non-discriminatory (FRAND) terms.

However, when another Chinese company, ZTE, sought a license from Huawei, they were unable to agree on the terms, so Huawei brought an action for infringement against ZTE. According to ZTE, Huawei's attempt to obtain an injunction against it constituted an abuse of its dominant position, since ZTE was willing to negotiate a license.
Here's the key part of the Advocate General's opinion. After making the alleged infringer aware of its infringement, the standard-essential patent-holder must also:

Present the alleged infringer with a written offer of a licence on FRAND terms and that offer must contain all the terms normally included in a licence in the sector in question, including the precise amount of the royalty and the way in which that amount is calculated.

The infringer must respond to that offer in a diligent and serious manner. If it does not accept the SEP holder’s offer, it must promptly present the latter with a reasonable counter-offer, in writing, in relation to the clauses with which it disagrees.

The rest of the opinion then goes on to fill out details of what is reasonable and unreasonable as the negotiations continue, and as recourse is made to the courts. In many ways, it's an attempt to flesh out what that problematic "fair, reasonable and non-discriminatory" means. But a far better solution would be to stipulate that all standard-essential patents must be licensed on an RF -- royalty-free, also known as requirement-free -- basis. That's precisely what the leading web standards body, the W3C, specifies in its patent policy:

In order to promote the widest adoption of Web standards, W3C seeks to issue Recommendations that can be implemented on a Royalty-Free (RF) basis. Subject to the conditions of this policy, W3C will not approve a Recommendation if it is aware that Essential Claims exist which are not available on Royalty-Free terms.

To this end, Working Group charters will include a reference to this policy and a requirement that specifications produced by the Working Group will be implementable on an RF basis, to the best ability of the Working Group and the Consortium.

It's quite reasonable to expect holders of standard-essential patents to agree to RF licensing since the inclusion of their invention in a standard is, in itself, an important benefit: it places the patent-holder at the center of the standard, and enhances its influence over the field it refers to. It also helps it avoid the need for costly and pointless lawsuits like the one between Huawei and ZTE.

from the just-drop-it-already dept

Microsoft and Motorola have been fighting over patents for many years, predating Google purchasing Motorola Mobility. One thing that's never made any sense at all is why Google continued this strategy. While it may have been a short-term money grab, and a way to poke Microsoft in the eye, it seemed like Google could make a much stronger overall statement about abusing patents by changing course. And, even for those who don't think that there's a principled stand to take here, there's the other side of it: the patent fight has been a complete disaster for Google/Motorola.

The ITC has sided with Microsoft, the FTC dinged Google for how it handled Motorola's standards essential patents, the EU has sided with Microsoft and a US court did as well. And, the latest is that a jury in that trial has, once again, sided with Microsoft over Motorola, saying that Motorola was seeking licensing fees for standards essential patents that were way out of line.

This is a key battle over what "FRAND" (fair, reasonable and non-discriminatory) licensing terms on standards essential patents (SEPs) should be. Historically, Google has been pretty good about pushing back against patent abuse, including the ridiculous licensing demands that get thrown around for SEPs. But when it inherited the Motorola case, it kept Motorola's bad strategy going, and now it's suffering the consequences. Google had a chance to make a really strong statement early on, chose not to, and now is getting slapped around pretty much everywhere for trying to charge ridiculously high licensing fees. This seems like a financial, strategic and legal mistake all wrapped in one.

from the live-by-the-sword... dept

Ever since Google decided to stick with Motorola Mobility's existing patent fights with various companies, I've been wondering why they did so. Here was a chance for Google to take the high road and actually live up to what it had been claiming concerning the problems of patents. But, instead, it's basically continued to try to use patents as a weapon. The fight against Microsoft has been particularly silly. While Microsoft did initiate things, Motorola's decision to fight back had seemed dubious from the start. Being a patent bully is no way to run a long-term business, and that's doubly true when you're a company telling people how broken the patent system really is.

And yet, Motorola Mobility pushed on against Microsoft... and it's not going well. On Friday, a judge knocked the damages down to next to nothing, basically siding with Microsoft. Microsoft had argued that if there were any infringement, the amount owed should be about $1.2 million. Motorola Mobility had argued for... $4 billion. The judge came down at just $1.8 million.

I recognize, of course, that the whole reason that Google bought Motorola Mobility was to get access to these patents. And, on top of that, Microsoft did strike first here. However, Motorola Mobility had hit back quite strongly, and even once Google was in control, it seemed to have little interest in pulling back. The whole thing makes Google look a bit hypocritical, and it certainly hasn't helped the company win any of these legal battles.

from the bye-bye dept

Earlier this year, in a key patent fight between Apple and Motorola Mobility, Judge Richard Posner, who was "slumming" it down in the district courts for a bit, dismissed that case with prejudice while slamming Apple for its patent litigation strategy. Now, it appears that we have something of a surprise repeat situation, as a different judge in a different patent fight between the same parties has also dismissed the case with prejudice after angrily teeing off on Apple for its litigation strategy. Most of the reasoning can be found in an opinion the judge released late last week.

The key issue was that Apple was pushing the court to determine what the FRAND (Fair, Reasonable and Non-Discriminatory) rate was for the patents in question. Motorola wanted 2.25% of every iPhone sold. Apple was pushing for much lower. However, as the judge explored whether or not the court should determine a rate, Apple was asked if it would abide by whatever rate the court set -- leading it to say that it would only do so if the rate were under $1 per phone. This seriously ticked off the judge, who noted that it would take a ton of work for the court to come up with what it believed to be a FRAND rate -- and if it was only doing that so Apple could then use it as a bargaining chip in future litigation, that just didn't seem worth it.

Despite its position, Apple maintains that it is entitled to specific performance in the form of the court determining what a FRAND rate is for
Motorola's patents. At the final pretrial conference, I asked Apple to explain why it believed the court should determine a FRAND rate even though the rate may not resolve the parties' licensing or infringement disputes. I questioned whether it was appropriate for a court to undertake the complex task of determining a FRAND rate if the end result would be simply a suggestion that could be used later as a bargaining chip between the parties. Apple responded that the rate would resolve the dispute in this particular case, namely, whether Motorola's license offer was FRAND and if not, what the rate should have been.

Apple's response was not satisfactory and did not assuage my concerns about determining a FRAND rate that may be used solely as a negotiating tool between the parties. After further consideration, I believe it would be inappropriate to grant Apple's clarified request for specific performance.

Apple made a last ditch to salvage the case -- and even to argue that if the case is dismissed, it should be dismissed without prejudice, so it can refile. However, the judge dumped the case entirely, with prejudice, meaning that Apple is out of luck here. It can, and almost certainly will, appeal the dismissal, but the judge is clearly not at all pleased with Apple's actions here. The judge also had some choice words for Apple concerning its argument that Motorola's actions have "irreparably" harmed the company.

Apple's allegations of "irreparable harm" have at least two problems. The first problem is that Apple's request for specific performance in the form of court declaration of a FRAND rate without any obligation by Apple to accept the rate would not prevent Motorola from suing
Apple for patent infringement and requesting injunctive relief. In other words, if Apple refuses to be bound by the rate determined by the court, Motorola could continue to sue Apple for patent infringement and request injunctive relief.

The second problem is that Apple has provided no reason why its injuries would not be remedied by an award of money damages.

Basically, Apple's playing games here, and the judge (the second one in a row in such a case) is not at all happy about it. Apple may want to revisit its legal strategy.

Of course, just as this case is getting thrown out, it's been leaking that the FTC's main focus in its planned antitrust attack on Google will be... Motorola Mobility and the licensing rates for these patents. I do admit that I think it's a silly move for Google to try to continue this path of forcing other companies to pay high fees on patents (and seems to go very much against Google's stated position on patents historically), but taking that to the level of antitrust seems like an odd stance. We'll have to see when the actual complaint comes out, but seeing as one of the key cases related to this just got thrown out, it would seem to weaken the FTC's argument somewhat...

from the but-of-course dept

Our own Glyn Moody has been doing some digging and has come up with some interesting info about how Microsoft has been trying to derail an effort in the UK by the government to use open, royalty free standards wherever possible. Microsoft, apparently went on the offensive, arguing strongly that the government should reconsider and also include FRAND (fair, reasonable and non-discriminatory) licenses. FRAND is better than nothing, but it's not royalty free, and can certainly limit access to information for those who cannot afford to pay. But what's impressive is how much Microsoft tries to demonize royalty free offerings -- even as it admits in its initial letter than it contributes to "dozens" of royalty free standards.

Moody also notes that Microsoft is misleading in trying to show just how popular FRAND is in open standards when it comes to software:

In a further attempt to downplay RF standards, the letter claims:

one recent study found that a typical laptop contains over 250 technical interoperability standards - with 75% of these being developed under FRAND terms, and only 23% under Royalty Free terms.

As this makes clear, those "250 technical interoperability standards" were mostly about hardware interoperability. Of the purely software standards a far greater proportion were in fact made available under RF terms. Even more interesting, those RF-licensed standards included many of the absolutely core ones like HTML5, HTTP and HTTPS.

In other words, when it comes to software, the royalty free stuff is the core software that's used to power much of the internet itself. But Microsoft goes on to suggest that royalty free software is somehow limiting, mainly by highlighting some confusion people have had with the open document format. It's the typical Microsoft play: spread FUD to try to push people to its (more costly) solutions. Apparently competing on the merits is just too difficult.

from the live-by-the-sword dept

It's difficult not to look cynically at Microsoft's latest move to file an antitrust complaint in the EU over Motorola's patent royalty rates, and think about just how obnoxiously hypocritical Microsoft is being as a company on this particular issue. First off, Microsoft has become a pretty significant patent aggressor over the past few years, filing lawsuits and pressuring companies to pay up. It's also been a huge fan of patent FUD -- especially against open source competitors. Most people assume that Microsoft was the main player behind SCO's quixotic (but costly and distracting) legal battle against Linux. Then, of course, every so often Microsoft officials insist that Linux infringes on a bunch of its patents, but it never wants to make clear which ones. More recently, of course, Microsoft has been demanding license fees for its patents from a variety of companies making use of Android -- to the point that some have argued Microsoft makes more off each Android installation than each Microsoft Phone installation.

Of course it was partly Microsoft's aggressive patent position against Android that put Google in the position of feeling compelled to buy Motorola Mobility to get its patent portfolio, mainly for the sake of protecting itself and having a bunch of patents that it could use as a shield against a lawsuit from the likes of Microsoft. Of course, Microsoft was already suing Motorola over the company's use of Android.

A few weeks ago, we discussed the tough spot that Google was in over Motorola's patents. The company has indicated that would keep in place Motorola's current patent licensing strategy. While many of us would prefer that Google make a big statement by freeing or opening up many of these patents, the company is actually in something of a ridiculous position: if it does that... its competitors (mainly Microsoft) will claim anti-trust violations by saying that the company is using its market position to undercut the prices that other charge.

It's other choice? Keep the current rates. And that's what it's indicated it would do... so the second that the EU and the US approved the merger, Microsoft files this antitrust complaint, arguing that the rates Motorola charges for its patents is too high. It's a damned if you do, damned if you don't position for Google. Keep the rates as they are, and they're violating antitrust rules by charging too much. Cut the prices or free up some of the patents, and it's an antitrust issue for leveraging their position and "dumping" in the market.

Of course, Microsoft's almost gleeful blog post about its complaint ignores all of this reality and history, and tries to position it as if Motorola and Google are trying to "kill" web and mobile video by charging too high a royalty rate. Frankly, for anyone who knows anything about Microsoft's patent practices over the past few years, they'll see through this and recognize how laughable Microsoft's claims are.

Either way, the situation is ridiculous. Fighting over patents doesn't help bring any new innovations to market. It just diverts money to the lawyers.